So Ireland is being bailed out

Update at 20:03 Hong Kong Time: The Irish Green Party has called for a General Election to be held early next year. So after the bailout, the government was done for.

From Bloomberg:

Ireland sought international aid, becoming the second euro country to need a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency.

Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund, Irish Finance Minister Brian Lenihan told reporters late yesterday. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), would help Ireland avoid selling bonds.

I suppose Ireland does not have any choice now. They have to be bailed out even though they used to say that they are well funded into middle of next year. However, the markets would not allow them to do so but to force for a bail out. This is probably a demonstration of reflexivity, as George Soros would have put it.

I am not entirely sure this is the next question to ask, and I am not very much interested in this, but people might probably be interest in this: Who’s next? But this is not as important now, as we have already got two casualties in the European debt crisis, we have seen a much faster response to the Irish problems than the Greek problems (and in fact, the EU and IMF forced Ireland somewhat to ask for money).

What is the implication? Markets will be desensitised by future shocks from Europe, believing that any countries having problems will be bailed out. Perhaps it is good for investors, as there is now an implicit guarantee attached to Eurozone bonds that if any of these countries got into trouble, someone will have to come into rescue. But I thought the orderly defaults proposed by Angela Merkel was actually a good idea, if it can actually be implemented (which I don’t know how). Although it wasn’t quite supported by investors because they would lose money, this should encourage countries to manage their public finances prudently because they would be punished by the bond markets if they did not.

Yes, I know this is not an easy issue. For a currency area with tens of countries, defaults of any of them would prove to be hard to deal with. For one thing, they even cannot print money to inflate the debt away. They are just like California.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.